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Digging Deeper on Unemployment: It’s Worse Than You Think

With the whirlwind of scandal currently buffeting the Obama Administration, domestic attention has shifted away from economic performance. Be assured, the economic picture is as bleak as ever. Economic indicators like GDP tend to be measures of monetary flow, not economic well-being per se; in fact, GDP is boosted every time there is a tragic natural disaster, and those aren’t good for anyone!

GDP is neither the Holy Grail of economic performance that some commentators believe it to be, nor are the S&P and NASDAQ stock market indicators. These aggregate measures, taken in isolation, don’t necessarily represent the economic performance of the US. For example, the stock market is higher than ever, but for a vast majority of America, it doesn’t feel like economic performance is “higher than ever”. A more holistic approach is needed to determining economic health.

The unemployment rate should be considered alongside the other economic indicators mentioned above; together they give a more accurate picture of economic health. Unemployment is a measure of joblessness in the nation, and it’s calculated 6 different ways. The U3 unemployment rate is one of the rates compiled by the Bureau of Labor Statistics (the BLS) and is used as the “official statistic” for unemployment you always hear about every time new data is released. The BLS collects a number of other measures of unemployment that can help concerned citizens better understand the whole picture of economic health.

The U3 rate is defined by the International Labor Office. This rate takes into account everyone of working age that has gone, “without work during the reference period, i.e. were not in paid employment or self-employment”, workers who are “currently available for work, i.e. were available for paid employment or self-employment during the reference period” and those workers “seeking work, i.e. had taken specific steps in a specified recent period to seek paid employment or self-employment.” There are other rates, like the U6, that are more revealing of economic performance.

The U6 rate, compiled by the BLS, takes into account those things the U3 does, and more. The U6 is a unique rate that represents the “real” rate of unemployment. It accounts for those workers who have been forced out of the job market because of repeated failed job searches, workers who have been forced to look for work grossly beneath their skill level and those who are willing to work beneath their skill level but still can’t even find employment at those conditions.

The current underemployment rate, the difference between the U5 and U6 rates, is 4%. The underemployment rate is an expression of the number of people being forced to work at a job significantly underneath their skill level, for example a PhD. Student working as a barista or a veteran entrepreneur working as a bank teller.

The U3 has fallen slightly from its peak of 10.2%; it now hovers around 7.5% after its unprecedented time above 8%. Why is it dropping? People are leaving the workforce and not returning, the U3 doesn’t capture this aspect of unemployment or those who are underemployed, seeking fulltime work. The U6 does, though, and the U6 sits at an unacceptable 13.9%!

If you delve further into the BLS’ data, you can find where the BLS has broken unemployment down by age and race factors, the data paints a grim picture for those unfortunate to live in the Obama Economy. The rate of unemployment for black Americans between 16-19 years of age is at a disgraceful 40%, while the general youth unemployment rate is a depressing 24.1%. Any talk of an economic recovery is merely insulting to the millions of Americans without jobs.

While the BLS publishes a lot of labor market data, their calculation method changes over time, this skews the unemployment rate making it misleading at times. For example, the employment rate during the great depression was not calculated the same way the unemployment rate is calculated today. One site, Shadow Stats, collects government economic data and publishes it using a uniform calculation method (the method used for all unemployment calculations before 1994). The organization is run by John Williams, an economic reporting specialist and veteran economic consultant. If you think the BLS’ U6 rate was a rude surprise, the Shadow Stats U6 is slightly over 22%, quite a bit higher than the BLS U6 rate of 13.9%.

Understanding the data the government publishes can help citizens understand the real state of the economy so they are not misled by declarations of a strong recovery.

The Congressional Budget Office (CBO) released a report last month projecting an increase in the federal budget deficit relative to the gross domestic product (GDP) for the first time since 2009. The deficit for this year is now expected to be $590 billion. As a percentage of GDP, that is 3.2% compared to last year’s 2.5%. It is not good news when the deficit is growing faster than the economy, which is currently growing at 1.4%.

In the television drama, The West Wing, President Josiah Barlet, played by Martin Sheen, laments to his chief of staff, Leo McGarry, about the challenges of growing the economy. "Historically, 2 to 2.5 percent GDP expansion is classified lackluster even anemic economic growth," Bartlet said. "Four and a half to 5 percent is needed just to be considered robust and not even spectacular."

Senator Bernie Sanders (I-Vt.) gave a highly anticipated speech at Georgetown University on Thursday, where he extolled socialism. The Democratic presidential candidate, whose proposed an estimated $18 trillion in new spending over the next decade, invoked President Franklin D. Roosevelt and the New Deal in his effort to sell his message to college students.

On Friday, May 2, the White House was happy to announce the lowest US unemployment rate since September 2008. As reported by the Bureau of Labor Statistics, with 288,000 nonfarm jobs added to the economy, the unemployment rate dropped from 6.7% to 6.3% in April 2014.

Like malfunctioning clockwork, President Barack Obama's new budget proposal has arrived (a little late) to provide us all with some comic relief. Aptly referred to as a "fantasyland" by POLITICO's David Nather, President Obama's budget hikes taxes, expands federal interference in education, increases the minimum wage, and bails out another federal agency. Sound appealing?

Fallacy Friday: The Unemployment RateThe last Fallacy Friday focused on the improper logic and economics surrounding the minimum wage. This week, let’s take a look at a fallacy of deception: the deceptiveness of the current unemployment rate.

On February 5, the Congressional Budget Office released a report titled, "Macroeconomic Effects of Alternative Budgetary Paths". Full disclosure: even to us policy wonks, this report sounds a bit dry. Not exactly 50 Shades of Grey, if you know what I mean. But this report did contain some very interesting nuggets. Prepared at the request of the Chair of the Senate Budget Committee, Patty Murray, I'm certain that it came as a bit of a surprise.